ALEX MILLS: Tight oil plays contribute to forecast for energy production growth in U.S.

The U.S. Energy Information Administration (EIA) recently released its long-term energy projections all the way into 2040, and it predicts that energy production in the U.S. will continue to rise.

It's a very positive economic and environmental report for the nation. However, it does make one very important caveat: The report is based on current laws and regulations, and it does not project enactment of any new requirements on energy production and consumption.

Even though EIA predicts that renewable energy will increase from 13 percent of consumption in 2011 to only 16 percent in 2040, crude oil and natural gas will be the primary energy sources.

Crude oil production, particularly from tight oil plays, rises sharply over the next decade. Domestic oil production increases an annual average of 234 thousand barrels per day (bpd.) from 2011 through 2019, when production reaches 7.5 million bpd. The growth results largely from a significant increase in onshore crude oil production, particularly from shale and other tight formations. After about 2020, production begins declining gradually to 6.1 million bpd. in 2040 as producers develop sweet spots first and then move to less productive or less profitable drilling areas.

EIA predicts that the spot crude oil price on the international Brent market declines from $111 per barrel (in 2011 dollars) in 2011 to $96 per barrel in 2015. After 2015, the Brent price increases, reaching $163 per barrel in 2040, as growing demand leads to the development of more costly resources.

World liquids consumption grows from 88 million bpd. in 2011 to 113 million bpd. in 2040, driven by demand in China, India, Brazil, and other developing economies.

Total U.S. primary energy consumption grows by 7 percent from 98 quadrillion Btu in 2011 to 108 quadrillion Btu in 2040. The fossil fuel share of primary energy consumption falls from 82 percent in 2011 to 78 percent in 2040 as consumption of petroleum-based liquid fuels falls, largely because of the incorporation of new fuel efficiency standards.

Net imports of energy decline both in absolute terms and as a share of total U.S. energy consumption. The decline in energy imports reflects increased domestic petroleum and natural gas production, increased use of biofuels, and lower demand resulting from rising energy prices and the adoption of new efficiency standards for vehicles. The net import share of total U.S. energy consumption is 9 percent in 2040, compared with 19 percent in 2011. (The share was 29 percent in 2007.)

U.S. natural gas production increases, outpacing domestic consumption by 2020 and spurring net exports of natural gas. U.S. exports of LNG from domestic sources rise to approximately 1.6 trillion cubic feet in 2027, double the 0.8 trillion cubic feet projected in 2012. The United States becomes a net exporter of LNG in 2016.

The share of electricity generation from renewables grows from 13 percent in 2011 to 16 percent in 2040. Electricity generation from solar and, to a lesser degree, wind energy sources, grows as recent cost declines make them more economical.

However, the 2013 projection is less optimistic about the ability of advanced biofuels to capture a rapidly growing share of the liquid fuels market. As a result, biomass use in 2013 will total 4.2 quadrillion Btu compared to a slight increase of 4.9 quadrillion Btu in 2040.

Alex Mills is president of the Texas Alliance of Energy Producers. Contact him at alexm@texasalliance.org.